The Effect of Energy Prices on Mexican Households’ Consumption

Abstract

Historically, Mexico has been a relevant actor in the international energy market. In 1984, Mexico was the fourth largest producer of oil in the world. However, since 2000 oil production in Mexico has been seriously affected due to unfavorable national economic and institutional aspects, and adverse international conditions. After being the sixth largest petroleum producer in 2000 (3,460 barrels per day), in 2019, Mexico occupied the fourteenth place in oil production in the world (1,914 barrels per day). Reductions in country’s energy production as well as a high domestic demand generated serious economic problems to keep the existing high subsidies in the market. In poor and developing countries, when income increases, households tend to invest in private automobiles rather than using public transportation. As a consequence, in 2013, an energy reform was promulgated in Mexico. Using in-formation from the National Survey of Household Income and Expenditure, this research estimates a Quadratic Almost Demand System (QUAIDS) for 2018. Results indicate that the estimated elasticity prices indicate that the demand for energy is inelastic. When prices increase, households do not tend to change their consumption. In the face of increases in energy prices, households will tend to cut expenditure shares of other goods. Changes in prices have a greater impact on low-income household well-being compared to high-income households.